As UBS seeks to increase its wealth management services to ultra-high-net-worth clients, that ambition extends to working with them to build a legacy art collection, recently publishing a report on the topic.
The global art market is booming, with sales of nearly $70 billion in 2022 between galleries and auction houses. That doesn’t even include secretive private sales that often happen at the top end.
Family offices and UHNW collectors play a key role in the art market — not just as spectators but in driving trends and valuations, according to the report.
Starting out as a collector and given the fact that the art world is famously opaque and unregulated but potentially lucrative and emotionally satisfying, it’s important to be "a decisive risk-taker at the right moments,” said Matthew Newton, a UBS art advisory specialist, recalling how a collector recently told a major artist over dinner that he had bought the artist's work for $100 just over a decade ago. “Expensive works are becoming more expensive, and so it’s becoming increasingly important to make informed decisions.”
The types of collections that last, according to UBS, include:
- Encyclopedic art collections, defined by their broad and comprehensive scope.
- Focused collections that offer “a more refined lens into a slice of the art world.” They tend to emphasize a specific artist, period, movement, theme or medium.
- Missional or purpose-based art collections “are characterized by a lens of purpose that directs the collector to acquire certain artworks over others,” often to advance the objectives of a social, cultural, education or charitable cause.
- Emerging-artist collections can be dynamic and risky but exciting, focusing on artists in the early stages of their careers or late-career artists who have not received widespread recognition.
- Multigenerational art collections “are often a testament to the aesthetic sensibilities, intellectual interests and enduring heritage of a family.” Over generations, each one adds its “layer of influence and care and in the process [crafts] a family legacy through art.”
- Cross-collectible collections go beyond fine art and can include vintage automobiles, high-grade watches, antique furniture, rare books and fine wine.
Building a collection, caring for it and giving or selling artworks requires practical, sophisticated and independent guidance, Newton said.
What stands out about family offices collecting art is that decisions go right to the principals of the family — even at large family offices with lots of bureaucratic layers, he said.
One smart strategy they employ is to give artworks as gifts to a family foundation — with the family office staff coordinating the transportation and lending of these works, which are considered charitable assets, to museums and exhibitions. A recent creative approach was the William Paley Collection at the Museum of Modern Art, which was earmarked in a way that allowed the museum to sell pieces to benefit its digital program.
Families with collections need to think carefully about their emotional importance, said Julie Binder, a senior strategist with Family Advisory and Philanthropy Services at UBS. She recalls a client whose parents had given a museum a painting that meant a lot to her growing up.
“Every time she saw it in a museum, she was reminded of having it in her family,” Binder said.
If her parents had discussed the gift with her beforehand, they “would have learned how much it meant to her and would have made a different gifting decision.”
Likewise, not every family member or museum is necessarily pleased to receive such a gift, since it “doesn’t always align with their goals or wishes.”
In recent years, a market has grown for minority stakes in artwork and these fractional-owned investments. Securitized art platforms offer the opportunity to own a portion of the work and share in the appreciation of its value. But plenty of risk is involved and should be approached with plenty of skepticism, according to the UBS report.
There’s also a growing interest in philanthropic gifts among art collectors — including fractional gifts, which can have tax implications that collectors need to be aware of. The gift tax exemptions that doubled in 2017 will sunset at the end of 2025 without additional congressional action.
“If, however, the collector uses a portion or all of the higher exemption amounts by making gifts prior to the sunset date, those amounts transferred in excess of the exemption amount immediately before sunset generally will be locked in and exempt from transfer tax going forward pursuant to guidance from the IRS,” UBS said.